Download The Climate Regime and International Trade

Trade, Climate Change and
Sustainable Energy Transition
Moustapha Kamal Gueye
International Centre for Trade
and Sustainable Development
(ICTSD)
1
Outline
 The changing energy landscape
 The climate regime and international trade
 Making the international trade system more
responsive to climate change and a sustainable
energy transition
ICTSD (2006) Linking Trade, Climate Change and Energy – Selected Issue Briefs
2
The Changing Energy Landscape
 Increasing energy consumption: world set to use 60
percent more energy in 2030 than at present.
 Climate change, volatile and rising oil prices, and
growing concerns over energy security.
 Renewable energies are on the rise, but incentives and
investments remain insufficient.
 The entry into the WTO of large oil-exporting countries OPEC members but also Russia and Central Asian
countries is inducing structural changes in trade and
energy - a bargain between energy exporters and
importers >>> implications for trade rules on energy.
3
The Climate Regime and International Trade (1)
Trade and climate change currently managed
under separate and complex legal regimes.
 The Kyoto Protocol sets emissions reduction targets, but
does not mandate specific policies to achieve those
targets. Policy measures are to be set by respective
countries.
 However, these measures, “should not constitute a
means of arbitrary or unjustifiable discrimination or a
disguised restriction on international trade”.
4
The Climate Regime and International Trade (2)
 Some of the measures available to parties in the
implementation of the Protocol, however, may have trade
effects in certain cases: subsidies for renewable energy;
carbon taxes; energy standards and labels; regulatory
quotas on renewable energy use; and government
regulations that favour environmentally-preferable
products and processes.
 WTO rules – through disciplines on subsidies, border
measures, technical requirements, government
procurement and taxes – have crucial implications on
options available to countries in implementing climate
measures.
 Countries need policy space in the trade arena to
implement climate policy measures, while also abiding
by their commitments under the WTO agreements
5
Making the international trade system more responsive to
climate change and to a sustainable energy transition
Agriculture and Climate Change
Subsidies
Taxation
Standards and Labelling
Environmental Goods and Services
6
Agriculture and Climate Change (1)
Agriculture and carbon sequestration
• Agriculture contributes to the climate change problem in
as much as it does to its solution – 7% of US total CO2
emissions, potential to reduce US 1990 GHG emissions
level by 12-40% (Pew Center on Global Climate Change,
2001).
• In Europe, some estimates suggest that changing
agricultural practices on 20% of the land could take care
of 9% of European reduction commitments under the
Kyoto Protocol.
7
Agricultural Domestic Support in the WTO
Domestic Support
Amber Box
Trade distorting
subsidies subject to
reduction: support
prices, or subsidies
directly related to
production quantities
Reductions expressed
in “Total Aggregate
Measurement of
Support” (Total AMS)
which includes
products specific and
non product specific
supports in one single
figure
De Minimis
Exemptions
Trade distorting
subsidies
exempted from
reduction if they
represent less
than 5% of value
of production
(10% for
developing
countries)
Green Box
(Annex 2)
Blue Box
Production Limiting
programmes based on
no more than 85% of
the base level of
production.
At present allowed
without limits
Non- or minimally
trade distorting
subsidies including
direct/decoupled
payments,
environmental
programs, food aid,
insurance, income
safety nets, etc.
S&DT Box
(Article 6.2)
For developing
countries only:
investment and
input subsidies,
domestic support
to encourage
diversification
from illicit crops
No reduction
commitments
At present allowed
without limits
8
Agriculture and Climate Change (2)
Supporting climate-friendly agricultural practices
 Subsidies for better management practices/carbon
sequestration would theoretically fall into the Green Box.
 But production-related subsidies (Amber Box) are going
to be cut.
Energy and climate change implications
 Support to crops used as feedstock in the production of
biofuels may be actionable. AoA applies, difficult to justify
under Green Box.
9
Distribution of Product-specific AMS
(the most trade-distorting measures)
10
Subsidies (1)
General rules on subsidies
 WTO Agreement on Subsidies and Countervailing
Measures (ASCM) bans all export subsidies,
industry/sector specific subsidies and subsidies that lead
to discrimination against like imported products.
 All other subsidies are permissible as long as they do not
cause adverse trade effects to another member.
Climate change and energy implications
 Industry/sector-specific subsidies are actionable and may
be countervailed
11
Subsidies (2)
Possible options for energy subsidies
 Restoring the non-actionable 1995-2000 subsidy exemption
clause to allow subsidies for R&D and technological development.
Little progress in the negotiations.
 The limits: only 20% of the cost of upgrading can be covered by
the government. In comparison, agriculture’s Green Box allows
government support up to but not over 100%, as long as it does
not have trade distortive effects.
 Subsidies based on objective criteria: automatic eligibility
according to level of carbon emission or energy efficiency in general
 An energy Green Box: both for environmental reasons (climate
change) and for economic reasons (market failure).
12
Taxation
General rules
 Carbon and energy taxes allowed on fuels, electricity and downstream
industries sing energy as input –as long as applied equally to
domestic and foreign products that are similar or ‘like.’
 Border tax adjustment (BTA) is allowed as an energy tax on a product
itself which is being levied or reimbursed at the border, such as a tax
on an energy material or product. Opinion is divided however on
whether BTA are permitted for taxable inputs that are not physically
incorporated in the final product (e.g. implicit carbon content).
Climate and energy implications
 Applying a carbon tax to fossil fuels and exempting renewable
energies – which are “directly competitive or substitutable” requires
proving to the WTO that the two energy sources are not like or
“directly competitive or substitutable” >>> the issue of PPM
13
Standards and Labeling (1)
General rules
 Standards and labels will play a large role in enabling both producers
and consumers to participate in emission reductions.
 Significant impact on emission reductions: an estimated 80% of the
climate change impacts of refrigerating plants are due to energy
consumption.
 In the Doha Round, eco-labels and standards are being discussed in
the context of EGS and within the negotiations on NAMA
 In the NAMA negotiations, environmental standards and
mandatory labelling, have been raised as potential non-tariff
barriers.
14
Standards and Labeling (2)
 WTO Agreement on Technical Barriers to Trade (TBT)
allows technical standards for the purposes of fulfilling
legitimate environmental objectives, such as climate
objectives (voluntary schemes fall outside the remit of
WTO).
Rule of non-discrimination or unnecessary barriers to
trade
Climate and energy implications
 Unlike most other WTO agreements, the TBT explicitly
allows goods to be distinguished on the basis of PPM, with
the condition that these PPM are product-incorporated.
15
Environmental Goods and Services (1)
 Para 31 iii of Doha mandate on negotiations for the reduction, or
elimination, of tariffs and non-tariff barriers on EGS.
 Three types of goods leading to positive climate outcomes can be
envisaged: low-carbon fuels such as ethanol or bio-diesel;
renewable technologies such as solar cells or wind turbines; or
energy efficient “environmentally preferable products” such as
efficient refrigerators.
 Proposal for natural gas-based fuels submitted by Qatar
 Defining EGS: issues of ‘end-use,’ ‘process and production method’
(PPM) and ‘environmentally preferable products.’
 The distinction has implications for EGS, but also provides the
rationale for carbon taxes, renewable energy quotas, eco-labels and
standards.
16
Environmental Goods and Services (2)
Climate and energy implications: E.g. Bioenergy
 Ethanol and biodiesel fall under different product classifications:
 Ethanol is considered an agricultural product, biodiesel is
classified as a chemical (industrial good)
 Implications in terms of the WTO rules and disciplines that apply
to ethanol or biodiesel with respect to tariffs and subsidies
 In Doha negotiations tariff reduction formula envisaged are much more
ambitious in industrial goods than in agricultural goods.
 Proposal by India and Brazil but not included in the different lists
proposed by developed countries.
 Developed countries want to exclude agricultural products from EGS
negotiations.
17
Thank you
International Centre for Trade
and Sustainable Development (ICTSD)
www.ictsd.org
ICTSD is the publisher of BRIDGES Between Trade and
Sustainable Development© and
BRIDGES Weekly Trade News Digest©, and co-publisher of
PUENTES entre el Comercio y el Desarrollo Sostenible©; and
PASSERELLES entre le commerce et le développement
durable©; and
PONTES Entre o Comércio e o Desenvolvimento Sustentável©
18